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Whereas the PRSP focused on implementing poverty reduction program, the PRGF included measures to privatize some of governments strategic institutions like the Zambia National Commercial Bank, Zambia Electricity Supply Corporation, Zambia telecommunications company and many others. Failure to meet either one of them would result in Zambia losing the anticipated benefits of the HIPC initiative.
Therefore, the route to attaining completion of HIPC, which would come with debt relief from bilateral creditors under the Paris Club as well as the multilateral institutions, was characterized by economic and social pitfalls.
Zambia missed the HIPC completion point twice in 2003 and 2004. In 2003, Zambia slipped off the austere conditionality requirements because the government had accepted to negotiate a wage rise for a poorly motivated civil service whose earnings ($60/month for teachers, nurses and police) were falling far below the Jesuit Center for Theological Reflection Basic Needs Basket ($208 in 2003) as well as the official poverty line.
This wage rise led to government spending more on the public service than was actually planned and as a result of this slippage, Zambia was thrown off the PRGF of the IMF. Because the IMF utilizes its strength to signal to other creditors and donors about countries which it deems good and those it deems unsatisfactory, Zambia's budget deficit resulting from this development meant that Zambia had slid off the PRGF.
This culminated into an aid freeze from the IMF and other donors such as the European Union, who withheld $100 million and $38 million, respectively. As soon as Zambia got back on track with the PRGF, new pledges were made from the IMF ($320.41 million from the EU or € 100 million in Euro) and the World Bank ($100 million).
During the actual time of implementing HIPC, Zambia continued to make huge debt service payments which show a sustained rise from $138 million to $178 million and $227 million in 2002, 2003 and 2004 respectively. This was at the expense of social service delivery — including healthcare and education — which was still receiving less budgetary allocations.
What have the impacts of conditionality of the IMF/World Bank been on Zambia?
Zambia is currently struggling with the insurmountable consequences of austere conditionalities during the economic crises of the 1980 to 2000.
For Zambia, employment levels fell from 75,400 in 1991 to 43,320 in 1998, whereas paid employment in the manufacturing sector fell from 140,000 to 83,000 in 2000 due to Structural Adjustment Program (SAP) related conditionalities such as trade liberalization and privatization.